The September Payrolls Report underwhelmed the already subdued market expectations, the upshot of which is that expectations for QE Tapering not commencing before March next year have been further enhanced. Despite a 9k net upward revision to the July and August numbers, the 148k headline rise in employment has put the Q3 average monthly payroll gain at 129k compared to an average of 187k in Q2. Whilst there is more to the overall assessment of the labour market than the Payrolls Report and indeed the Unemployment Rate continues to tick down even without a decline in labour force participation last month, incoming data surely falls short of the sustained improvement in the labour market outlook and which the FOMC has set as a precondition for starting to wind down its current policy settings.The upshot here is that one of Janet Yellan’s first acts as Fed Chair may be to lower the unemployment rate threshold (currently 6.5%) at which a rate rise becomes likely.
In terms of market action, we have seen the predictable bounce in US equities, fall in Bond Yields (with the 10 Year Treasury Bond dropping to a new recent low of 2.51%) and the US Dollar crunching lower across the board.
In overnight action, Asian stocks were lower on higher Chinese Money Market rates and a surge in the Japanese Yen with the US Dollar/Yen falling from 98.20 to 97.40 presently.
This morning on the economic front the Bank of England releases its latest Monetary Policy Committee Minutes and we have Consumer Confidence from the Euro-Zone. Later from the US we have the MBA Mortgage Applications and the House Price Index.
December S&P 500
The S&P closed up another 0.6% to reach another record high as the theme of weak data is good for the equity markets continues. In my opinion this is madness as the P/E ratio does not justify the S&P to be trading at these lofty levels. The S&P is now overbought on a Daily, Weekly and Monthly basis and at the top of the Bollinger Band but interestingly the Williams Index has started to turn down. After the Payrolls were released the market traded up to my 1749 sell level before unfortunately stopping me out of this position at the high of the day at 1754. After a small sell off from this level the market rebounded on the Apple presentation and I went short again at 1750. I am still short and I am hoping this position will turn into a more macro trade. I will leave a 1755 stop on this position and today I will also be a seller on any rally back to 1748/1753 with the same 1755 stop. For the first time in a very long time I do not want to be long the S&P. However the market really needs to break and close below 1710 for me to get fully bearish.
Euro/USD
I am glad that I was able to cover my short Euro position yesterday morning ahead of the Payroll data as the Euro subsequently traded up to my 1.3780 sell level. I have been looking for a move up to this level for the last four months and I am happy to be short here. I will leave my stop the same at 1.3820. I do not want to be long the Euro at this time and if the Euro can break and close back below 1.3700 it will leave a confirmed sell signal.
December DAX
The Dax worked out well yesterday as after I was stopped out of my small short 8870 position at 8895 it subsequently traded up to my aggressive sell level at 8970. After a nice sell-off overnight I have been able to cover this position this morning at 8907 and I am now flat. I still do not like the Dax and today I will look to reset my short position on any rally back to 8940/8970 with a 8995 stop which is just above yesterday’s high. I do not want to be long the Dax at this time.
December FTSE
The FTSE also worked well yesterday as the market traded up to my 6690 sell level and after a nice sell off I have been able to cover this position at 6650 and I am now flat. Today I will still be a seller on any rally to 6680/6710 with a 6725 stop whilst I will leave my buy level the same at 6520/6550 with a 6495 stop.
Dow Rolling Contract
I was very unlucky with the Dow yesterday as the market traded up to my 15480 sell level before similar to the S&P above I was stopped out of this position at the top of the market at 15510 and I am now flat. The Dow is a lot lower this morning and I will look to go short again on any rally to 15470/15500 with a 15530 stop which is just above yesterday’s high. I do not want to be long the Dow at this time.
December BUND
The Bund just missed my buy level yesterday before having a strong rally and I am still flat. The price action in the Bund over the last two weeks is telling you that we have trouble ahead for risk assets and today I will raise my buy level to 140.20/140.40 with a 1.3995 stop. I still do not want to be short the Bund at this time.
Gold Rolling Contract
Gold worked well yesterday as after the Payrolls were released Gold exploded higher and I was able to cover my long 1313 position at 1340 and I am now flat. I am impressed at the fact that Gold was able to close over 1330 and today I will be a small buyer on any dip to 1325/1332 with a 1318 stop.
Silver Rolling Contract
Shortly after I posted yesterday morning Silver traded down to my 22.00 buy level and after a nice rally I was able to cover this position at 22.60 and I am now flat. I am impressed that Silver was able to break and close back above 22.50 and today I will be a small buyer on any dip to 22.30/22.55 with a 22.15 stop.
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